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Nokia Corporation Financial Report for Q3 and January-September 2017

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Nokia Corporation Interim report October 26, 2017 at 08:00 (CET +1)

Nokia Corporation Financial Report for Q3 and January-September 2017

Strong earnings driven by Nokia TechnologiesThis is a summary of the Nokia Corporation financial report for Q3 and January-September 2017 published today. The complete financial report for Q3 and January-September 2017 with tables is available at www.nokia.com/financials. Investors should not rely on summaries of our financial reports only, but should review the complete reports with tables.

Given the strong year-on-year group-level performance with both gross and operating margins up significantly and continued momentum in the execution of our strategy, Nokia's Board of Directors plans to propose a dividend of EUR 0.19 per share for 2017 (EUR 0.17 for 2016).

In Q3 2017, on a constant currency basis, the year-on-year net sales performance in IP Networks and Applications and Global Services improved, when compared to the year-on-year performance in Q2 2017. On a constant currency basis, year-on-year net sales grew by 2% in both Global Services and IP Routing.

37% year-on-year net sales increase and 73% year-on-year operating profit increase in Q3 2017, primarily related to a settled arbitration in the third quarter 2017. Approximately EUR 180 million of the net sales were non-recurring in nature and related to catch-up net sales for prior periods. With fast and effective execution against our patent licensing strategy, we have approximately doubled our recurring license revenue from EUR 578 million in 2014.

Third quarter and January-September 2017 non-IFRS results. Refer to note 1, "Basis of Preparation", in the Financial statement information section for further details 1

EUR million (except for EPS in EUR)

Q3'17

Q3'16

YoY change

Q2'17

QoQ change

Q1-Q3'17

Q1-Q3'16

YoY change

Net sales - constant currency (non-IFRS)

(4)%

2%

(4)%

Net sales (non-IFRS)

5 537

5 956

(7)%

5 629

(2)%

16 555

17 241

(4)%

Nokia's Networks business

4 823

5 329

(9)%

4 971

(3)%

14 696

15 744

(7)%

Ultra Broadband Networks

2 099

2 519

(17)%

2 165

(3)%

6 500

7 171

(9)%

Global Services

1 359

1 389

(2)%

1 448

(6)%

4 168

4 277

(3)%

IP Networks and Applications

1 365

1 421

(4)%

1 358

1%

4 028

4 295

(6)%

Nokia Technologies

483

353

37%

369

31%

1 099

745

48%

Group Common and Other

251

297

(15)%

307

(18)%

812

803

1%

Gross profit (non-IFRS)

2 365

2 381

(1)%

2 350

1%

6 911

6 814

1%

Gross margin % (non-IFRS)

42.7%

40.0%

270bps

41.7%

100bps

41.7%

39.5%

220bps

Operating profit (non-IFRS)

668

556

20%

574

16%

1 583

1 233

28%

Nokia's Networks business

334

435

(23)%

406

(18)%

1 064

1 085

(2)%

Ultra Broadband Networks

78

278

(72)%

191

(59)%

514

589

(13)%

Global Services

110

39

182%

123

(11)%

289

175

65%

IP Networks and Applications

146

119

23%

91

60%

260

321

(19)%

Nokia Technologies

390

226

73%

230

70%

736

421

75%

Group Common and Other

(56)

(105)

(47)%

(62)

(10)%

(217)

(274)

(21)%

Operating margin % (non-IFRS)

12.1%

9.3%

280bps

10.2%

190bps

9.6%

7.2%

240bps

Financial income and expenses (non-IFRS)

(63)

(78)

(19)%

(63)

0%

(207)

(174)

19%

Taxes (non-IFRS)

(90)

(216)

(58)%

(74)

22%

(211)

(491)

(57)%

Profit (non-IFRS)

516

264

95%

441

17%

1 159

574

102%

Profit attributable to the equity holders of the parent (non-IFRS)

514

258

99%

449

14%

1 160

605

92%

Non-controlling interests (non-IFRS)

2

6

(67)%

(9)

0

(31)

(100)%

EPS, EUR diluted (non-IFRS)

0.09

0.04

125%

0.08

12%

0.20

0.11

82%

Third quarter and January-September 2017 reported results. Refer to note 1, "Basis of Preparation", in the Financial statement information section for further details 1

EUR million (except for EPS in EUR)

Q3'17

Q3'16

YoY change

Q2'17

QoQ change

Q1-Q3'17

Q1-Q3'16

YoY change

Net Sales - constant currency

(4)%

2%

(3)%

Net sales

5 500

5 896

(7)%

5 619

(2)%

16 496

16 984

(3)%

Nokia's Networks business

4 823

5 329

(9)%

4 971

(3)%

14 696

15 744

(7)%

Ultra Broadband Networks

2 099

2 519

(17)%

2 165

(3)%

6 500

7 171

(9)%

Global Services

1 359

1 389

(2)%

1 448

(6)%

4 168

4 277

(3)%

IP Networks and Applications

1 365

1 421

(4)%

1 358

1%

4 028

4 295

(6)%

Nokia Technologies

483

353

37%

369

31%

1 099

745

48%

Group Common and Other

251

297

(15)%

307

(18)%

812

803

1%

Non-IFRS exclusions

(38)

(60)

(37)%

(11)

245%

(59)

(258)

(77)%

Gross profit

2 185

2 233

(2)%

2 236

(2)%

6 546

5 841

12%

Gross margin %

39.7%

37.9%

180bps

39.8%

(10)bps

39.7%

34.4%

530bps

Operating (loss)/profit

(230)

55

(45)

411%

(403)

(1 417)

(72)%

Nokia's Networks business

334

435

(23)%

406

(18)%

1 064

1 085

(2)%

Ultra Broadband Networks

78

278

(72)%

191

(59)%

514

589

(13)%

Global Services

110

39

182%

123

(11)%

289

175

65%

IP Networks and Applications

146

119

23%

91

60%

260

321

(19)%

Nokia Technologies

390

226

73%

230

70%

736

421

75%

Group Common and Other

(56)

(105)

(47)%

(62)

(10)%

(217)

(274)

(21)%

Non-IFRS exclusions

(898)

(501)

79%

(620)

45%

(1 986)

(2 650)

(25)%

Operating margin %

(4.2)%

0.9%

(510)bps

(0.8)%

(340)bps

(2.4)%

(8.3)%

590bps

Financial income and expenses

(63)

(80)

(21)%

(218)

(71)%

(427)

(215)

99%

Taxes

102

(111)

(172)

(223)

56

(Loss)/Profit

(190)

(133)

43%

(433)

(56)%

(1 058)

(1 570)

(33)%

(Loss)/Profit attributable to the equity holders of the parent

(192)

(119)

61%

(423)

(55)%

(1 088)

(1 410)

(23)%

Non-controlling interests

2

(14)

(9)

30

(161)

EPS, EUR diluted

(0.03)

(0.02)

50%

(0.07)

(57)%

(0.19)

(0.25)

(24)%

Net cash and other liquid assets

2 731

5 539

(51)%

3 964

(31)%

2 731

5 539

(51)%

1 Results are as reported unless otherwise specified. The financial information in this report is unaudited. Non-IFRS results exclude costs related to the acquisition of Alcatel-Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value adjustments, restructuring and associated charges and certain other items that may not be indicative of Nokia's underlying business performance. For details, please refer to the non-IFRS exclusions section included in discussions of both the quarterly and year to date performance and note 2, "Non-IFRS to reported reconciliation", in the notes in the Financial statement information in this report. Change in net sales at constant currency excludes the impact of changes in exchange rates in comparison to euro, our reporting currency. For more information on currency exposures, please refer to note 1, "Basis of Preparation", in the Financial statement information section in this report.

Dividend and capital structure update

Nokia's Board of Directors plans to propose a dividend of EUR 0.19 per share for 2017. The dividend is Nokia's principal method of distributing earnings to shareholders, and Nokia targets to deliver an earnings-based growing dividend. Over the long term, Nokia targets to grow the dividend by distributing approximately 40% to 70% of non-IFRS EPS, taking into account Nokia's cash position and expected cash flow generation.

On October 29, 2015, after Nokia's Board of Directors conducted a thorough analysis of Nokia's potential long-term capital structure requirements, Nokia announced a EUR 7 billion program to optimize the efficiency of its capital structure. This program consists of approximately EUR 4 billion in shareholder distributions and approximately EUR 3 billion of de-leveraging. As of the end of the third quarter 2017, approximately EUR 6.9 billion of our capital structure optimization program had been completed. The remaining amount of approximately EUR 0.1 billion relates to planned share repurchases, and is expected to be completed by the end of 2017. Following the completion of this program, and factoring in our targeted dividend for 2017, Nokia is confident that it will have a strong and efficient capital structure.

In addition to information on our reported IFRS results, we provide certain information on a non-IFRS, or underlying business performance, basis. We believe that our non-IFRS results provide meaningful supplemental information to both management and investors regarding Nokia's underlying business performance by excluding the below-described items that may not be indicative of Nokia's business operating results. These non-IFRS financial measures should not be viewed in isolation or as substitutes to the equivalent IFRS measure(s), but should be used in conjunction with the most directly comparable IFRS measure(s) in the reported results.

Non-IFRS results exclude costs related to the acquisition of Alcatel-Lucent and related integration, goodwill impairment charges, intangible asset amortization and purchase price related items, restructuring and associated charges, and certain other items that may not be indicative of Nokia's underlying business performance. The non-IFRS exclusions are not allocated to the segments, and hence they are reported only at the Nokia consolidated level.

Financial discussion

The financial discussion included in this financial report of Nokia's results comprises the results of Nokia's businesses - Nokia's Networks business and Nokia Technologies, as well as Group Common and Other. For more information on our reportable segments, please refer to note 3, "Segment information", in the Financial statement information section in this report.

CEO STATEMENT

Nokia delivered excellent non-IFRS earnings-per-share in the third quarter of EUR 0.09; strong year-on-year group-level performance, with both gross and operating margins up significantly; and continued momentum in the execution of our strategy. Given this good progress, Nokia's Board of Directors plans to propose a dividend of 19 euro cents for 2017, up 2 cents from one year ago.

The performance of our patent licensing business was the clear highlight of the quarter. We reached a favorable arbitration outcome with LG and have since reached agreement with them on a license for a longer term than what was set out in the arbitration. With this fast and effective execution against our patent licensing strategy, we have approximately doubled our recurring licensing revenue from EUR 578 million in 2014. I am also particularly pleased that in 2017 the growth in patent licensing has helped to offset the sales decline on the Networks side. We have excellent momentum and considerable opportunity to further develop the business in 2018 and beyond.

We also saw strength in many parts of our Networks business in the quarter. On the sales side, we saw constant currency year-on-year growth in Global Services and IP Routing as well as our Middle East and Africa, and Asia-Pacific regions. Orders were up in many areas, including Applications & Analytics, which logged its fifth consecutive quarter of order growth in Q3, showing the progress we are making in our strategy to build a strong, stand-alone software business.

On the profitability side, the overall Networks gross margin of 38.6% was up compared to one year ago, a remarkable achievement in the context of a market that remains challenging. In addition, Global Services and IP Networks and Applications delivered significant improvements in operating margin compared to Q3 2016, at 8.1% and 10.7%, respectively.

We continued to build momentum in our strategy to expand our customer base beyond communication service providers. Across the adjacent segments that we are targeting, year-to-date orders were up by double-digit percentages and sales were up by 8%, excluding the former Alcatel-Lucent third-party integration business that we are currently winding down.

We also added more than 60 new customers in these adjacent segments so far this year, including China Pacific Insurance Company, the first large enterprise win for our Nuage business in China. With cable operators, we won the first customer - WOW! in the United States - for our new products coming from the acquisition of Gainspeed, which we are also trialing with almost a dozen customers, including some of the industry's largest players.

These results reflect the power of our disciplined operating model and the advantages of our end-to-end portfolio. In a market where competition remains robust, operational discipline is a must, and it is a core strength of Nokia. Furthermore, as the market transitions to 5G, I believe that the benefits of our portfolio will become even more apparent given that 5G is about much more than Radio. It requires Cloud core, IP routing, transport of many kinds, fixed wireless access, Software-Defined Networking and more - and Nokia is one of the very few companies that is able to meet all those needs.

Despite the progress we made in the quarter, we experienced some challenges in our Mobile Networks business and see a continued decline in our primary addressable market in 2018. That decline, which we estimate to be in the range of 2% to 5%, is the result of the multiple technology transitions underway; robust competition in China; and near-term headwinds from potential operator consolidation in a handful of countries.

In terms of the issues we are facing in Mobile Networks, I have noted in previous quarters that the R&D team in this business group has faced an extraordinarily high workload. Given this situation, we have seen some issues with the time taken to converge some products that have, unfortunately, impacted a small number of customers. As a result, Mobile Networks has experienced both revenue pressure and an increase in expected network equipment swap costs.

My team is fully committed to getting these things back on track and we are already seeing meaningful improvements. Field deployments of our new AirScale products were ramping up in all our geographies, including with key North American customers. These products help improve operator competitiveness, not just by addressing cost challenges, but also by setting a new standard for performance and flexibility. We also saw a meaningful increase in customer satisfaction scores.

I would also note that despite some additional investment required in Mobile Networks to maintain product leadership, we are committed to our EUR 1.2 billion cost savings plan in full-year 2018. These savings come at a slightly higher cost than previously expected, and we continue to assess opportunities to deliver further savings in the area of cost-of-goods sold.

Regarding our cash position, I am not satisfied with our performance in the third quarter and we are redoubling our efforts in this area. Maintaining our strong balance sheet is a clear priority.

In short, Q3 was a period in which we faced some challenges, but delivered good performance in many areas as well as momentum in the execution of our strategy.

A discussion of our results within Nokia's Networks business, Nokia Technologies and Group Common and Other is included in the sections "Nokia's Networks business", "Nokia Technologies" and "Group Common and Other" below.

Year-on-year changes

EUR million, non-IFRS

Net sales

% change

Gross profit

(R&D)

(SG&A)

Other income and (expenses)

Operating profit

Change in operating margin %

Networks business

(506)

(9)%

(138)

(17)

11

43

(101)

(130)bps

Nokia Technologies

130

37%

132

7

25

0

164

1 670bps

Group Common and Other

(46)

(15)%

(10)

11

15

31

49

1 310bps

Eliminations

2

0

0

0

0

0

Nokia

(419)

(7)%

(16)

3

51

75

112

280bps

On a year-on-year basis, foreign exchange fluctuations had a negative impact on non-IFRS gross profit, a slightly positive impact on non-IFRS operating expenses and a slightly positive net impact on non-IFRS operating profit in the third quarter 2017.

Sequential changes

EUR million, non-IFRS

Net Sales

% change

Gross profit

(R&D)

(SG&A)

Other income and (expenses)

Operating profit

Change in operating margin %

Networks business

(148)

(3)%

(85)

(2)

6

8

(72)

(130)bps

Nokia Technologies

114

31%

121

2

25

12

160

1 840bps

Group Common and Other

(56)

(18)%

(22)

7

3

17

6

(210)bps

Eliminations

(2)

0

0

0

0

0

Nokia

(92)

(2)%

15

7

34

37

94

190bps

On a sequential basis, foreign exchange fluctuations had a negative impact on non-IFRS gross profit, a slightly positive impact on non-IFRS operating expenses and a slightly positive net impact on non-IFRS operating profit in the third quarter 2017.

Non-IFRS profit attributable to the equity holders of the parent

Year-on-year changes

EUR million, non-IFRS

Operating profit

Financial income and expenses

Taxes

Profit

Non-controlling interests

Profit attributable to the equity holders of the parent

Nokia

112

15

126

252

4

256

Non-IFRS taxes

Nokia's regional profit mix in the third quarter 2017 resulted in an unexpectedly low non-IFRS tax rate of 15%.

Non-IFRS financial income and expenses

The net positive fluctuation in financial income and expenses was primarily due to gains from venture fund investments, partially offset by an impairment charge related to the performance of certain private funds investing in intellectual property rights ("IPR").

Sequential changes

EUR million, non-IFRS

Operating profit

Financial income and expenses

Taxes

Profit

Non-controlling interests

Profit attributable to the equity holders of the parent

Nokia

94

0

(16)

75

(11)

65

Non-IFRS taxes

Nokia's regional profit mix in the third quarter 2017 resulted in an unexpectedly low non-IFRS tax rate of 15%.

Non-IFRS financial income and expenses

The flat financial income and expenses were primarily due to income related to gains from venture fund investments and foreign exchange fluctuations, fully offset by an impairment charge related to the performance of certain private funds investing in IPR.

The year-on-year decrease in net sales in the third quarter 2017 was primarily due to Nokia's Networks business and Group Common and Other, partially offset by Nokia Technologies and lower non-IFRS exclusions related to a purchase price allocation adjustment related to a reduced valuation of deferred revenue that existed on Alcatel-Lucent's balance sheet at the time of the acquisition.

Sequential discussion

The sequential decrease in Nokia net sales in the third quarter 2017 was primarily due to Nokia's Networks business, Group Common and Other and higher non-IFRS exclusions related to product portfolio strategy costs, partially offset by Nokia Technologies.

Operating profit

Year-on-year discussion

In the third quarter 2017, Nokia recorded an operating loss compared to an operating profit in the third quarter 2016. The change was primarily due to a net negative fluctuation in other income and expenses and lower gross profit, partially offset by lower selling, general and administrative ("SG&A") expenses.

The decrease in gross profit was primarily due to lower gross profit in Nokia's Networks business, higher non-IFRS exclusions and lower gross profit in Group Common and Other, partially offset by Nokia Technologies.

The decrease in SG&A expenses was primarily due to Nokia Technologies, Group Common and Other and Nokia's Networks business.

The net negative fluctuation in Nokia's other income and expenses was primarily related to higher non-IFRS exclusions attributable to higher restructuring and associated charges and an impairment charge, partially offset by Nokia's Networks business and Group Common and Other.

In the third quarter 2017, Nokia recorded a non-cash charge to other income and expenses of EUR 141 million, due to the impairment of goodwill related to its digital health business, which is part of Nokia Technologies. Following third quarter 2017 results, Nokia adjusted its long-term cash flow projections for its digital health cash generating unit, and recorded an impairment charge. The impairment charge was excluded from our non-IFRS results and allocated to the carrying amount of goodwill held within the digital health cash generating unit, which was reduced to zero. Going forward, Nokia Technologies aims to have a larger impact with consumers and the medical community through a more focused, more agile digital health business.

Sequential discussion

In the third quarter 2017, the increase in operating loss was primarily due to a net negative fluctuation in other income and expenses and lower gross profit, partially offset by lower SG&A expenses.

The decrease in gross profit was primarily due to lower gross profit in Nokia's Networks business, higher non-IFRS exclusions related to product portfolio strategy costs and lower gross profit in Group Common and Other, partially offset by Nokia Technologies.

The decrease in SG&A expenses was primarily due to Nokia Technologies and lower non-IFRS exclusions primarily related to transaction and integration costs.

The net negative fluctuation in Nokia's other income and expenses was primarily due to higher non-IFRS exclusions attributable to an impairment charge and higher restructuring and associated charges, partially offset by Group Common and Other and Nokia Technologies.

In the third quarter 2017, Nokia recorded a non-cash charge to other income and expenses of EUR 141 million, due to the impairment of goodwill related to its digital health business, which is part of Nokia Technologies. Following third quarter 2017 results, Nokia adjusted its long-term cash flow projections for its digital health cash generating unit, and recorded an impairment charge. The impairment charge was excluded from our non-IFRS results and allocated to the carrying amount of goodwill held within the digital health cash generating unit, which was reduced to zero. Going forward, Nokia Technologies aims to have a larger impact with consumers and the medical community through a more focused, more agile digital health business.

Profit/(Loss) attributable to the equity holders of the parent

Year-on-year discussion

In the third quarter 2017, the increase in loss attributable to the equity holders of the parent was primarily due to operating loss in the third quarter 2017 compared to an operating profit in the third quarter 2016. This was partially offset by a tax benefit in the third quarter 2017, compared to a tax expense in the third quarter 2016, and, to a lesser extent, a net positive fluctuation in financial income and expenses.

The net positive fluctuation in financial income and expenses was primarily due to gains from venture fund investments, partially offset by an impairment charge related to the performance of certain private funds investing in IPR.

The change in taxes from an expense in the third quarter 2016 to a benefit in the third quarter 2017 was primarily due to lower taxes resulting from a change in Nokia's regional profit mix.

Sequential discussion

In the third quarter 2017, the decrease in loss attributable to the equity holders of the parent was primarily due to a tax benefit in the third quarter 2017, compared to a tax expense in the second quarter 2017, and a net positive fluctuation in financial income and expenses. This was partially offset by an increase in operating loss.

The net positive fluctuation in financial income and expenses was primarily due to the absence of non-IFRS exclusions related to Nokia's tender offer to purchase the 6.50% notes due January 15, 2028, the 6.45% notes due March 15, 2029 and the 5.375% notes due May 15, 2019, which negatively affected the second quarter 2017, as well as higher gains related to venture fund investments. This was partially offset by an impairment charge related to the performance of certain private funds investing in IPR.

The change in taxes from an expense in the second quarter 2017, to a benefit in the third quarter 2017, was primarily due to the absence of both a non-recurring change to uncertain tax positions and a non-recurring tax expense related to deferred tax valuation allowance.

Description of non-IFRS exclusions in Q3 2017

Non-IFRS exclusions consist of costs related to the acquisition of Alcatel-Lucent and related integration, goodwill impairment charges, intangible asset amortization and purchase price related items, restructuring and associated charges, and certain other items that may not be indicative of Nokia's underlying business performance. For additional details, please refer to note 2, "Non-IFRS to reported reconciliation", in the Financial statement information section in this report.

EUR million

Q3'17

Q3'16

YoY change

Q2'17

QoQ change

Net sales

(38)

(60)

(37)%

(11)

245%

Gross profit

(181)

(149)

21%

(114)

59%

R&D

(177)

(179)

(1)%

(172)

3%

SG&A

(139)

(145)

(4)%

(151)

(8)%

Other income and expenses

(401)

(29)

1 283%

(182)

120%

Operating (loss)/profit

(898)

(501)

79%

(620)

45%

Financial income and expenses

0

(1)

(100)%

(156)

(100)%

Taxes

192

105

83%

(98)

(296)%

(Loss)/Profit

(706)

(397)

78%

(873)

(19)%

(Loss)/Profit attributable to the shareholders of the parent

(706)

(378)

87%

(873)

(19)%

Non-controlling interests

0

(20)

(100)%

(1)

(100)%

Non-IFRS exclusions in net sales

In the third quarter 2017, non-IFRS exclusions in net sales amounted to EUR 38 million, and related to product portfolio strategy costs and a purchase price allocation adjustment related to a reduced valuation of deferred revenue that existed on Alcatel-Lucent's balance sheet at the time of the acquisition.

Non-IFRS exclusions in operating profit

In the third quarter 2017, non-IFRS exclusions in operating profit amounted to EUR 898 million, and were primarily due to non-IFRS exclusions that adversely affected gross profit, research and development ("R&D") expenses, SG&A expenses and other income and expenses as follows:

In the third quarter 2017, non-IFRS exclusions in gross profit amounted to EUR 181 million, and were primarily due to product portfolio strategy costs related to the acquisition of Alcatel-Lucent, and the deferred revenue.

In the third quarter 2017, non-IFRS exclusions in R&D expenses amounted to EUR 177 million, and were primarily due to the amortization of intangible assets resulting from the acquisition of Alcatel-Lucent and, to a lesser extent, product portfolio strategy costs related to the acquisition of Alcatel-Lucent.

In the third quarter 2017, non-IFRS exclusions in SG&A expenses amounted to EUR 139 million, and were primarily due to the amortization of intangible assets resulting from the acquisition of Alcatel-Lucent and integration and transaction related costs.

In the third quarter 2017, non-IFRS exclusions in other income and expenses amounted to EUR 401 million, and were primarily due to restructuring and associated charges for Nokia's cost reduction and efficiency improvement initiatives, and a EUR 141 million impairment charge.

Non-IFRS exclusions in profit/(loss) attributable to the equity holders of the parent

In the third quarter 2017, non-IFRS exclusions in profit/(loss) attributable to the equity holders of the parent amounted to EUR 706 million, and were primarily due to the non-IFRS exclusions affecting operating profit, in addition to non-IFRS exclusions that adversely affected financial income and expenses and taxes as follows:

In the third quarter 2017, non-IFRS exclusions in financial income and expenses amounted to zero.

In the third quarter 2017, non-IFRS exclusions in taxes amounted to EUR 192 million, and were due to non-IFRS exclusions in operating profit.

Cost savings program

The following table summarizes the financial information related to our cost savings program, as of the end of the third quarter 2017. Balances related to previous Nokia and Alcatel-Lucent restructuring and cost savings programs have been included as part of this overall cost savings program as of the second quarter 2016.

In EUR million, approximately

Q3'17

Opening balance of restructuring and associated liabilities

750

+ Charges in the quarter

260

- Cash outflows in the quarter

130

= Ending balance of restructuring and associated liabilities

880

of which restructuring provisions

760

of which other associated liabilities

120

Total expected restructuring and associated charges

1 900

- Cumulative recorded

1 260

= Charges remaining to be recorded

640

Total expected restructuring and associated cash outflows

2 250

- Cumulative recorded

830

= Cash outflows remaining to be recorded

1 420

The following table summarizes our full year 2016 results and future expectations related to our cost savings program and network equipment swaps.

Actual

Expected amounts for

In EUR million, approximately rounded to the nearest EUR 50 million

2016

FY 2017 as of the end of

FY 2018 as of the end of

FY 2019 and beyond as of the end of

Total as of the end of

Q2'17

Q3'17

Q2'17

Q3'17

Q2'17

Q3'17

Q2'17

Q3'17

Total cost savings

550

250

250

400

400

0

0

1 200

1 200

- operating expenses

350

100

150

350

300

0

0

800

800

- cost of sales

200

150

100

50

100

0

0

400

400

Restructuring and associated charges

750

750

650

200

500

0

0

1 700

1 900

Restructuring and associated cash outflows

400

750

600

550

650

450

600

2 150

2 250

Charges related to network equipment swaps

150

450

550

300

550

0

150

900

1 400

Cash outflows related to network equipment swaps

150

450

600

300

500

0

150

900

1 400

In full year 2016, the actual total cost savings benefitted from lower incentive accruals, related to the full year 2016 financial performance. Lower incentive accruals drove more than half of the higher than previously expected decrease in total costs in 2016, and this is expected to reverse in 2017, assuming full year 2017 financial performance in-line with our expectations. On a cumulative basis, Nokia continues to be on track to achieve the targeted EUR 1.2 billion of total cost savings in full year 2018.

The increase in restructuring and associated charges is expected to be approximately EUR 200 million, approximately half of which is related to a non-cash US pension curtailment and the other half related to a number of smaller items, which are expected to have an approximately EUR 100 million cash impact.

The approximately EUR 500 million increase in estimated charges and cash outflows related to network equipment swaps was primarily due to the extended time taken to converge a limited set of products. We are now fully in the deployment phase of our swaps program. In addition to the increase in estimated charges and cash outflows, the program was also extended into 2019.

OUTLOOK

Metric

Guidance

Commentary

Nokia

Annual cost savings for Nokia, excluding Nokia Technologies

Approximately EUR 1.2 billion of total annual cost savings to be achieved in full year 20181

Compared to the combined non-IFRS operating costs of Nokia and Alcatel-Lucent for full year 2015, excluding Nokia Technologies. Nokia expects approximately EUR 800 million of the cost savings to come from operating expenses and approximately EUR 400 million from cost of sales.

Restructuring and associated charges are expected to total approximately EUR 1.9 billion. Restructuring and associated cash outflows are expected to total approximately EUR 2.25 billion.(This is an update to earlier commentary for restructuring and associated charges to total approximately EUR 1.7 billion and restructuring and associated cash outflows to total approximately EUR 2.15 billion.)

Network equipment swaps

Approximately EUR 1.4 billion in total1

(update)

The charges related to network equipment swaps are being recorded as non-IFRS exclusions, and therefore do not affect Nokia's non-IFRS operating profit.(This is an update to earlier guidance for network equipment swaps to be approximately EUR 900 million total.)

Non-IFRS financial income and expenses

Expense of approximately EUR 250 million in full year 2017

Primarily includes net interest expenses related to interest-bearing liabilities and defined benefit pension and other post-employment benefit plans, as well as the impact of foreign exchange rate fluctuations on certain balance sheet items.Nokia expects cash outflows related to non-IFRS financial income and expenses to be approximately EUR 200 million in full year 2017.

Non-IFRS tax rate

Approximately 20% for full year 2017

(update)

Nokia's non-IFRS tax rate in full year 2017 is expected to be influenced by factors including regional profit mix.(This is an update to earlier guidance and commentary for the non-IFRS tax rate to be between 25% to 30% for full year 2017.)Nokia expects cash outflows related to taxes to be approximately EUR 800 million for full year 2017.

Capital expenditures

Approximately EUR 600 million in full year 2017

(update)

Primarily attributable to Nokia's Networks business.(This is an update to earlier guidance for capital expenditures to be approximately EUR 500 million for full year 2017.)

Nokia's Networks business

Net sales

Decline in line with the primary addressable market in full year 2017

We currently expect market conditions for full year 2017 to be slightly more challenging than earlier anticipated, and we are providing new commentary on our primary addressable market for full year 2018. Guidance for Nokia's Networks business in 2018 is planned to be provided in conjunction with Nokia's Report for Q4 and Full Year 2017.Nokia's outlook for net sales and operating margin for Nokia's Networks business are expected to be influenced by factors including:

An approximately 4 to 5 percent decline in the primary addressable market for Nokia's Networks business in full year 2017, compared to the full year 2016, on a constant currency basis (This is an update to earlier commentary for a 3 to 5 percent decline.);

An approximately 2 to 5 percent decline in the primary addressable market for Nokia's Networks business in full year 2018, compared to the full year 2017, on a constant currency basis (new commentary for our primary addressable market in full year 2018);

Uncertainty related to the timing of completions and acceptances of certain projects, particularly in the second half of 2017 and first half of 2018 (new commentary for the first half of 2018);

Robust competition in China, which is expected to adversely affect the fourth quarter 2017 in particular (new commentary);

Execution of cost savings and reinvestment plans, with operating expenses down on a year-on-year basis in full year 2017; and

The level of R&D investment needed to maintain product competitiveness and accelerate 5G.

Operating margin

8-10% in full year 2017

Nokia Technologies

Net sales

Not provided

Due to risks and uncertainties in determining the timing and value of significant licensing agreements, Nokia believes it is not appropriate to provide an annual outlook for full year 2017.

For patent and brand licensing, Nokia is now disclosing net sales on a quarterly basis, rather than providing an annualized net sales run rate.

In the third quarter 2017, Nokia announced plans to focus on patent, brand and technology licensing and target faster growth in digital health and accelerate growth in that market, while optimizing investments in virtual reality. Due to a reduced focus on digital media, Nokia no longer believes it is appropriate to provide an annual outlook for digital health and digital media for the full year 2017 (new commentary).

(This is an update to earlier commentary for total net sales from digital health and digital media to grow year-on-year in full year 2017, primarily influenced by increased consumer adoption of our digital health and digital media products.)

a It should be noted that Nokia and its businesses are exposed to various risks and uncertainties and certain statements herein that are not historical facts are forward-looking statements, including, without limitation, those regarding: A) our ability to integrate acquired businesses into our operations and achieve the targeted business plans and benefits, including targeted benefits, synergies, cost savings and efficiencies; B) expectations, plans or benefits related to our strategies and growth management; C) expectations, plans or benefits related to future performance of our businesses; D) expectations, plans or benefits related to changes in organizational and operational structure; E) expectations regarding market developments, general economic conditions and structural changes; F) expectations and targets regarding financial performance, results, operating expenses, taxes, currency exchange rates, hedging, cost savings and competitiveness, as well as results of operations including targeted synergies and those related to market share, prices, net sales, income and margins; G) expectations, plans or benefits related to any future collaboration or to business collaboration agreements or patent license agreements or arbitration awards, including income to be received under any collaboration or partnership, agreement or award; H) timing of the deliveries of our products and services; I) expectations and targets regarding collaboration and partnering arrangements, joint ventures or the creation of joint ventures, and the related administrative, legal, regulatory and other conditions, as well as our expected customer reach; J) outcome of pending and threatened litigation, arbitration, disputes, regulatory proceedings or investigations by authorities; K) expectations regarding restructurings, investments, capital structure optimization efforts, uses of proceeds from transactions, acquisitions and divestments and our ability to achieve the financial and operational targets set in connection with any such restructurings, investments, capital structure optimization efforts, divestments and acquisitions; and L) statements preceded by or including "believe," "expect," "anticipate," "foresee," "sees," "target," "estimate," "designed," "aim," "plans," "intends," "focus," "continue," "project," "should," "is to," "will" or similar expressions. These statements are based on management's best assumptions and beliefs in light of the information currently available to it. Because they involve risks and uncertainties, actual results may differ materially from the results that we currently expect. Factors, including risks and uncertainties that could cause these differences include, but are not limited to: 1) our ability to execute our strategy, sustain or improve the operational and financial performance of our business and correctly identify and successfully pursue business opportunities or growth; 2) our ability to achieve the anticipated benefits, synergies, cost savings and efficiencies of acquisitions, including the acquisition of Alcatel-Lucent, and our ability to implement changes to our organizational and operational structure efficiently; 3) general economic and market conditions and other developments in the economies where we operate; 4) competition and our ability to effectively and profitably compete and invest in new competitive high-quality products, services, upgrades and technologies and bring them to market in a timely manner; 5) our dependence on the development of the industries in which we operate, including the cyclicality and variability of the information technology and telecommunications industries; 6) our global business and exposure to regulatory, political or other developments in various countries or regions, including emerging markets and the associated risks in relation to tax matters and exchange controls, among others; 7) our ability to manage and improve our financial and operating performance, cost savings, competitiveness and synergies generally or after the acquisition of Alcatel-Lucent; 8) our dependence on a limited number of customers and large multi-year agreements; 9) exchange rate fluctuations, as well as hedging activities; 10) Nokia Technologies' ability to protect its IPR and to maintain and establish new sources of patent licensing income and IPR-related revenues, particularly in the smartphone market; 11) our ability to successfully realize the expectations, plans or benefits related to any future collaboration or business collaboration agreements and patent license agreements or arbitration awards, including income to be received under any collaboration, partnership, agreement or arbitration award; 12) our dependence on IPR technologies, including those that we have developed and those that are licensed to us, and the risk of associated IPR-related legal claims, licensing costs and restrictions on use; 13) our exposure to direct and indirect regulation, including economic or trade policies, and the reliability of our governance, internal controls and compliance processes to prevent regulatory penalties in our business or in our joint ventures; 14) our ability to identify and remediate material weaknesses in our internal control over financial reporting; 15) our reliance on third-party solutions for data storage and service distribution, which expose us to risks relating to security, regulation and cybersecurity breaches; 16) inefficiencies, breaches, malfunctions or disruptions of information technology systems; 17) Nokia Technologies' ability to generate net sales and profitability through licensing of the Nokia brand, technology licensing and the development and sales of products and services for instance in digital health, as well as other business ventures, which may not materialize as planned; 18) our exposure to various legislative frameworks and jurisdictions that regulate fraud and enforce economic trade sanctions and policies, and the possibility of proceedings or investigations that result in fines, penalties or sanctions; 19) adverse developments with respect to customer financing or extended payment terms we provide to customers; 20) the potential complex tax issues, tax disputes and tax obligations we may face in various jurisdictions, including the risk of obligations to pay additional taxes; 21) our actual or anticipated performance, among other factors, which could reduce our ability to utilize deferred tax assets; 22) our ability to retain, motivate, develop and recruit appropriately skilled employees; 23) disruptions to our manufacturing, service creation, delivery, logistics and supply chain processes, and the risks related to our geographically-concentrated production sites; 24) the impact of litigation, arbitration, agreement-related disputes or product liability allegations associated with our business; 25) our ability to optimize our capital structure as planned and re-establish our investment grade credit rating or otherwise improve our credit ratings; 26) our ability to achieve targeted benefits from or successfully achieve the required administrative, legal, regulatory and other conditions and implement planned transactions, as well as the liabilities related thereto; 27) our involvement in joint ventures and jointly-managed companies; 28) the carrying amount of our goodwill may not be recoverable; 29) uncertainty related to the amount of dividends and equity return we are able to distribute to shareholders for each financial period; 30) pension costs, employee fund-related costs, and healthcare costs; and 31) risks related to undersea infrastructure, as well as the risk factors specified on pages 67 to 85 of our 2016 annual report on Form 20-F under "Operating and financial review and prospects-Risk factors" and in our other filings or documents furnished with the U.S. Securities and Exchange Commission. Other unknown or unpredictable factors or underlying assumptions subsequently proven to be incorrect could cause actual results to differ materially from those in the forward-looking statements. We do not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.

The financial report was authorized for issue by management on October 25, 2017.

MEDIA AND INVESTOR CONTACTS:

Nokia plans to publish its fourth quarter and annual 2017 results on February 1, 2018.

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